It seems like our main and most important disagreement is the RPL collateral requirement; this should take discussion priority above else. We have provided some thoughts below:
Tl;dr: We should not remove the RPL collateral requirement unless it is necessary, and it is too close to the Houston release to know if it is necessary yet
Our issues with the current proposal relate to a small number of important issues. While we share many of the views expressed in the “Tokenomics Explainers” and supporting materials, we do not agree with the final conclusions.
The Why Rework document outlines three core ideals:
Ideal 1 - RPL stake serves as an entry ticket to ETH commission via the minimum staking requirement to start a minipool (10% of borrowed ETH)
Ideal 2 - RPL rewards are attractive enough that node operators want to maintain this minimum staking level, so we expect them to stay at or above the minimum by adding RPL as needed
Ideal 3 - In the long run, the fundamental value of RPL trends to what’s needed for all minipools to hit this minimum staking level (ie, RPL market cap should be ~10% of rETH TVL)
The document concludes that because ideals 2 and 3 did not play out in reality, we should abandon the ideal of “RPL as an entry ticket to ETH commissions”. In our view this is an incorrect - or at least premature - conclusion.
The rework research has identified a number of potential reasons for this. One reason is that as RPL/ETH performance continued to decline, it became more expensive for NOs to maintain the minimum collateral level. Without RPL delegation, the only option was for NOs to buy or borrow the RPL. There was no trustless way for a NO to allow third parties to contribute their RPL towards that NO’s collateral maintenance (without using splitter contracts and trusting the other party).
Post-Houston, this is no longer the case. Whale marriages make it possible for a NO to maintain this collateral requirement without shouldering the entire financial burden of doing so. This is an improvement on the previous situation but we need to go further still: enshrine the concept of delegation into the protocol and eliminate the friction of collateral maintenance.
So far, the only options for an undercollateralized NO to launch new validators were to purchase RPL or exit minipools to reduce borrowed ETH and reduce their collateralization level.
Our proposal introduces a third option for attracting RPL delegates. This avoids the need to exit validators, which is good for rETH TVL and supports our Charter goal of prioritizing the health of the Ethereum network.
From its inception, RPL has been required as collateral. Changing this would significantly change the social contract between RPL holders and other ecosystem participants. The Charter specifically states that our goal is to serve the entire Rocket Pool community, which includes RPL holders (many of whom are also NOs).
The Houston upgrade already facilitates the primary goal of ETH-only pools (allowing NOs to onboard without RPL exposure). However, this change was only recently applied. As such, all of the analysis on whether we need ETH-only pools was performed on pre-Houston data.
When changing a complex system it is important to limit the number of changes made simultaneously and to allow time for the impact of each change to be sufficiently analyzed.
Introducing a second method for NOs to onboard without RPL exposure before we have had a chance to adequately assess its impact is premature.
RPL as an Entry Ticket
The main difference between our proposal and the existing proposal is the retention of the RPL collateral requirement, so we feel it is important to share our thinking on this point.
The Rework Intro document provides insight into the benefits of being a NO versus solo staking:
8 ETH bond: 10.5% boost compared to solo staking rewards.
4 ETH bond: 24.5% boost compared to solo staking rewards.
1.5 ETH bond: 71.2% boost compared to solo staking rewards.
Given those numbers, it is clear that NOs have a significant financial advantage over solo stakers. We believe it is equally clear that potential NOs would be willing to pay for an entry ticket that allows them to receive those boosted yields.
Consider this thought experiment: imagine there was a Validator Boost NFT for sale. If a solo staker buys and burns this NFT they get a lifetime 10.5% increase in their validator rewards. This scales linearly - if they have two validators they can buy two NFTs and earn boosted rewards on both. There is a limited supply of these NFTs and no more will be minted.
How much would this NFT be worth? A validator who expects to earn 1 ETH over the lifetime of their validator would stand to gain 0.105 ETH by using it.
Now consider a slightly different scenario: instead of burning the Validator Boost NFT the staker can resell it after they have exited, and another validator can use it. It seems likely that the resellable NFT would be valued more highly than the burnable NFT. How much more would depend on how the buyer perceives their ability to sell the NFT in the future.
What can we say about the value of these hypothetical NFTs?
- The true value of the NFTs is somewhere between 0 and the amount of extra ETH received by the validator
- Because the boost applies for the lifetime of the validator the NFT is worth more to a long-term staker than a short-term staker
- Short-term stakers - who would sell the NFT before recouping its cost - would be subjecting themselves to more market risk than long-term stakers
- The higher the perceived future value of the NFT, the lower the perceived Total Cost of Ownership
- The number of people willing to buy the NFT with >0 resale value will be larger than the number willing to buy the one with 0 resale value
- The true value of the NFT can only be expressed in ETH because the conferred benefit is measured in ETH
- An NFT with the 71.2% boost trait would be more valuable than a 10.5% boost trait
What conclusions can be drawn from this thought experiment about RPL?
- RPL has measurable value as an entry ticket, and giving this away for free is not economically rational
- A staker with longer time horizons will perceive RPL to have a lower cost. Those most willing to pay for the entry ticket are those who will most benefit the health of the network (reduced validator churn)
- A potential NO is more likely to buy RPL as an entry ticket if they believe they can resell it in the future, so providing buy-side demand could actively accelerate network growth
- Collateral requirements should be denominated in ETH, as that is the ROI metric potential buyers will use
If RPL has value, it can serve as collateral to improve protocol safety (e.g., by increasing the cost of MEV theft). However, this mechanism only functions if RPL has sufficient buy-side demand. By abandoning the historic primary value driver of RPL as an entry ticket, we limit the ability to rely on RPL as collateral.
For these reasons, we believe that introducing ETH-only validators would be tantamount to giving away one of the protocol’s most valuable resources—access to protocol ETH—for free.
The ability to borrow protocol ETH is a privilege, and we believe it is a privilege worth paying for.
Disclosure: Rocket Pool is a 1kx portfolio investment. 1kx also operates validators on the Rocket Pool network.